Microchip (MCHP) Q3 Earnings & Revenues Surpass Estimates

Microchip Technology Incorporated MCHP reported third-quarter fiscal 2020 non-GAAP earnings of $1.32 per share, beating the Zacks Consensus Estimate by 4.8%. Notably, the figure declined 15.4% on a year-over-year basis.

Net sales declined 6.4% from the year-ago quarter to $1.287 billion. However, the figure surpassed the Zacks Consensus Estimate of $1.274 billion.

Management noted sluggish demand across communication and appliance end-markets.

Quarter in Detail

In terms of product line, microcontroller business (53.3% of net sales) declined 1.7% sequentially to $685.8 million.

Analog net sales of $363.3 million (28.2%) declined 7.8% sequentially.

FPGA revenues (7.2%) came in at $92.6 million, down 0.6% on a quarter-over-quarter basis.

Microchip Technology Incorporated Price, Consensus and EPS Surprise

Microchip Technology Incorporated Price, Consensus and EPS Surprise

Microchip Technology Incorporated price-consensus-eps-surprise-chart | Microchip Technology Incorporated Quote

Licensing, memory and other, or LMO product line (11.3%) reported revenues of $145.7 million, which declined 4.7% sequentially.

Geographically, revenues from Americas, Europe and Asia contributed 24.1%, 21.5% and 54.4% to net sales, respectively.

Margins

Non-GAAP gross margin contracted 90 basis points (bps) on a year-over-year basis to 61.5%.

Non-GAAP research & development expenses, as a percentage of net sales, expanded 80 bps year over year to 15.2%. Non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of net sales, remained flat year over year at 11.1%. Non-GAAP operating expenses, as a percentage of net sales, expanded 90 bps year over year to 26.4%.

Consequently, non-GAAP operating margin contracted 170 bps on a year-over-year basis to 35.1%.

Balance Sheet & Cash Flow

As of Dec 31, 2019, cash and short-term investments came in at $402.3 million, compared with $405.1 million as of Sep 30, 2019.

As of Dec 31, 2019, total debt (long-term plus current portion) amounted to $9.58 billion compared with $9.80 billion as of Sep 30, 2019. Notably, the company paid down $257 million of debt during the quarter.

Cash flow from operating activities was $395.5 million during the quarter.

Notably, on Feb 4, 2020, Microchip’s board of directors announced a cash dividend of 36.70 cents per share, payable Mar 6, 2020, to shareholders as on Feb 21, 2020.

Guidance

Microchip forecasts fourth-quarter fiscal 2020 net sales of $1.313-$1.403 billion (mid-point $1.358 billion). The Zacks Consensus Estimate for the same is pegged at $1.32 billion.

Management is banking on design wins for its latest PolarFire solutions to boost FPGA revenues in the days ahead.

The company is optimistic on growing clout of microcontrollers, primarily the latest Bluetooth 5.0 dual-mode audio solutions.

Management expects strengthening demand across the United States and Europe amid weakness in China owing to Lunar New Year and coronavirus crisis.

For the fiscal fourth-quarter, non-GAAP earnings are anticipated in the range of $1.35-$1.51 per share (mid-point $1.43 billion). The Zacks Consensus Estimate for the same is pegged at $1.38 per share.

Non-GAAP gross margin is anticipated in the range of 61.5-61.9%.

For fiscal 2020, capital expenditures are projected between $76 million and $81 million.

Conclusion

Microchip is expected to benefit from robust demand for its 8-bit, 16-bit and 32-bit microcontrollers. We believe that Microchip's expanding product portfolio driven by new launches will aid it in expanding customer base.

Moreover, it is well poised to capitalize on synergies from accretive Microsemi and Atmel acquisitions.

Zacks Rank & Other Stocks to Consider

Currently, Microchip sports a Zacks Rank #1 (Strong Buy).

Alteryx AYX, Cirrus Logic CRUS and Garmin GRMN are some other top-ranked stocks in the broader computer and technology sector, each flaunting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alteryx, Cirrus Logic and Garmin is pegged at 39.85%, 15.27% and 7.35%, respectively.

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